Could Brazil Be the Next Japan and India?

In recent years the world has experienced two elections in large countries that ushered in new governments pledging dramatic economic reforms and led to surging stock markets. In Japan in December 2012, the election of Shinzo Abe and his Liberal Democratic Party led to economic reforms known as “Abenomics” and big stock market gains in early 2013. In India, the election in May of Narendra Modi and his Bharatiya Janata Party also led to higher stock prices. Could Brazil’s stock market similarly benefit from its upcoming election?

A Silva victory could have large implications for Brazilian stocks mainly because investors tend to dislike Rousseff. Brazil has suffered from weak economic growth and high inflation in recent years, and its stock market has underperformed other emerging markets. Many investors have blamed these occurrences on Rousseff’s policies. Silva has advocated more restrained fiscal policies, reducing the inflation rate, and free trade agreements, all of which tend to be popular with investors.

Of course no two countries are identical, so there’s no guarantee that the Japan/India scenario will replay itself in Brazil. One of the biggest differences is that by the end of their campaigns Abe and Modi were romping to massive victories, while the Brazilian candidates are locked in a tight battle. But if Silva is able to pull out a victory, and has enough of a mandate to initiate investor-friendly reforms, Brazil’s stock market may follow the playbook set by Japan and India.